Insurance Law

Lawmakers are looking for Affordable Care Act savings in the wrong place. Removing sick people from risk pools or reducing health plan benefits—the focus of lawmakers’ attention—would harm vulnerable populations. Instead, reform should target the $210 billion worth of unnecessary care prescribed by doctors, consented to by patients, and paid for by insurers.

This Article unravels the mystery of why the insurance market has failed to excise this waste on its own. A toxic combination of mismatched legal incentives, market failures, and industry norms means that the insurance market cannot solve the problem absent intervention.

On March 18, 2016, and March 22, 2016, a jury awarded Terry Bollea (a.k.a Hulk Hogan) a total of $140 million in compensatory and punitive damages against Gawker Media for posting less than two minutes of a video of Hulk Hogan having sex with his best friend’s wife. The award was based upon a finding that Gawker intentionally had invaded Hulk Hogan’s privacy by posting the video online.

The case has been receiving extensive media coverage because it is a tawdry tale involving a celebrity, betrayal, adultery, sex, and the First Amendment. The story would be better if all of the characters in the story were not, at best, anti-heroes. Hulk Hogan had sex with his best friend’s wife. Hulk Hogan’s sex partner committed adultery. Hulk Hogan’s best friend, the cuckold, allegedly was the person who videotaped the encounter and then leaked it to Gawker. And, after sleeping with his best friend’s wife, Hulk Hogan had the audacity to sue the cuckold for allegedly leaking the sex tape to Gawker, with the cuckold settling that claim by paying Hulk Hogan $5000. The cuckold then asserted his Fifth Amendment right against self-incrimination to avoid testifying in the case against Gawker. On the other side of the story, Gawker, the entity that posted the sex tape online, is a “media gossip” website host and does not look very good attempting to wear the cloak of the First Amendment by claiming that the contents of the Hulk Hogan sex video, as opposed to the simple fact that the tape existed, was newsworthy. Nor did it help Gawker’s image when Gawker’s editor testified that he would only draw the line against posting sex videos if the video included a child under four years old. It is hard to root for any of the parties in the case.

Insurance companies are in the business of discrimination. Insurers attempt to segregate insureds into separate risk pools based on the differences in their risk profiles, first, so that different premiums can be charged to the different groups based on their differing risks and, second, to incentivize risk reduction by insureds. This is why we let insurers discriminate. There are limits, however, to the types of discrimination that are permissible for insurers. But what exactly are those limits and how are they justified? To answer these questions, this Article (a) articulates the leading fairness and efficiency arguments for and against limiting insurers’ ability to discriminate in their underwriting; (b) uses those arguments to identify a set of predictions as to what one would expect state antidiscrimination laws to look like; and (c) evaluates some of those predictions against a unique hand-collected dataset consisting of the laws regulating insurer risk classification in all fifty-one U.S. jurisdictions. Among our findings is that, contrary to the conventional wisdom, state insurance antidiscrimination laws vary a great deal: in substance and in the intensity of regulation, across lines of insurance, across policyholder characteristics, and across states. The Article also finds that, contrary to our own predictions, a surprising number of jurisdictions do not have any laws restricting insurers’ ability to discriminate on the basis of race, national origin, or religion.

With the American health care system facing a looming crisis due to unsustainable rates of medical cost inflation, the government has reacted by passing the Patient Protection and Affordable Care Act. While the present ubiquity of third-party payers in the form of health insurance or government programs spawns inefficiencies and perverse incentives that drive market forces to work against, rather than toward, maximum social welfare, the reform bill threatens to exacerbate the very inefficiencies it seeks to avoid. Rather than focusing on controlling medical cost inflation, the bill seeks to include high-risk groups that are normally priced out of the insurance market, thus placing more stress on the payment model. The individual mandate—making health insurance mandatory—ensures that the low-risk young and healthy demographic will bear the cost of this increased burden on the insurance system. This Note examines how the recent health reform bill proposes to restructure the insurance market itself and analyzes the inadequacies of the individual mandate. Further, it briefly explores the constitutional challenges to the mandate and discusses whether the health reform bill is salvageable in light of its deficiencies.

Critics of the individual mandate to purchase health care insurance make a simple but seemingly compelling argument. If the federal government can require people to buy insurance because that would be good for their health, then the government can require people to buy all sorts of things that are good for their health, like broccoli or membership in an exercise club.

To avoid the prospect of the ultimate nanny state, U.S. district court judges in Florida and Virginia concluded that while the federal government may regulate economic activity, it may not regulate economic inactivity. Thus, once you decide to purchase health care insurance, the government can regulate the terms of your insurance policy. However, you cannot be forced to purchase the policy in the first place. To breach the activity-inactivity line, wrote Judge Roger Vinson, would invite all kinds of well-intended, but liberty-destroying, laws.

The American health care system is on a glide path toward ruin. Medical spending is rising at an unsustainable rate: it is on track to reach 30 percent of gross domestic product (“GDP”) a quarter century from now and half of GDP within seventy-five years. The number of Americans without health insurance is approaching fifty million, and surging unemployment could push this figure much higher. Most of the care that patients receive is of unproven value, and up to one hundred thousand Americans die prematurely each year from medical mistakes. So it is for good reason that health reform has returned to the top of the nation’s political agenda. A decade and a half after the collapse of President Clinton’s health reform plan, Americans are again pressing for relief from soaring costs and telling pollsters and politicians that they want medical care for all. The main difference, this time, is that the problems have grown much worse.

Shortly after the tragic events of September 11, 2001, Congress passed the Air Transportation Safety and System Stabilization Act (“ATSSSA”). The September 11th Victim Compensation Fund (“VCF”) was the centerpiece of the statute and provided a source of no-fault compensation to the tragedy’s victims and victims’ families. The ATSSSA also permitted victims to pursue traditional litigation instead.

The ATSSSA contains three “jurisdictional” features that have shaped the path of the litigation. The Act created a federal cause of action “for damages arising out of” the terrorist-related aircraft crashes and gave the Southern District of New York original and exclusive jurisdiction over all actions “resulting from or relating to the terrorist-related aircraft crashes.” Finally, it implemented a liability cap by limiting recovery in all actions to the defendants’ available liability insurance. These jurisdictional aspects of the “traditional” litigation option under the ATSSSA contain unusual and practically unprecedented elements, yet they have received almost no scholarly attention. This Article attempts to fill that gap by telling the story of the course of the September 11th litigation, tracking the challenges and issues that have arisen as a result of the ATSSSA’s coordination mandate, and exploring the relationship between federalization of forum and aggregation of claims.

Subrogation has been called a “sleepy, although significant subject,” and perhaps consequently, many articles treating the topic begin with a prefatory example (either real or abstract) of the potential entanglements it can create. In line with this established tradition, this Note begins with two such examples.

Roy Block was injured in an automobile accident caused by another person. Like roughly 23 million other people in California, Block belonged to a managed care organization (“MCO”). His MCO agreed to pay for the treatment of his injuries on the condition that he agree to reimburse it from any eventual tort recovery. This might seem fair since Block might otherwise recover twice for his injuries; first when the MCO paid for his treatment and then again when he recovered from the tortfeasors. Yet, what if Block was not able to recover for all of his injuries, economic or otherwise? For example, what if he suffered a total of $10,000 in damages, half of which was for medical expenses, but was forced to settle for $7,000? Should his MCO still be allowed to recover its full $5,000 claim first, even if this leaves him uncompensated for $3,000 in pain and suffering and lost wages? How should a court interpret MCO contracts that provide for this very contingency? This is one of the problems discussed in this Note.